The Myths and Realities of America’s Oil and Gas Boom

Stephen Lacey is the Editor-in-Chief of Greentech Media. He manages a team of writers focused on solar, storage, efficiency, mobility, and grid modernization. He is producer/host of The Energy Gang and Interchange podcasts, two leading interview and analysis shows on the business of energy and cleantech.

Michael Levi, a senior fellow at the Council on Foreign Relations, is a familiar name the energy media-sphere. He’s the rare kind of opinionated expert who thrusts himself into a debate without ideological baggage and straddles both sides of a contentious issue gracefully. Agree with him or disagree with him, he knows how to incite a healthy conversation about energy.

Levi is now out with a new book titled The Power Surge: The Battle for America's Energy Future, which looks at the on-the-ground realities of America’s energy shift. The book is his attempt to dispel many of the myths that have crept into the debate about America’s energy future over the last few years.

To understand today’s polarized discussion about energy, we need to go back to the 1970s, which brought two major global energy crises, the rise of nuclear energy, deepening fears about peak oil and the birth of the modern environmental movement.

“You really have to go back to that time to see a period with this much change," said Levi.

The result was America’s first major political divide about the country’s energy future that pitted those advocating a “soft path” based on conservation and renewables against those who saw fossil fuel supply growth as the answer.

"There was this sharp split. Both sides largely agreed that either [approach] was exclusive,” he said.

The deepening divide was largely driven by fears about the environment, the economy and global geopolitics.

Sound familiar? Levi argues that fear is the reason why America's conversation around energy is so polarized today.

“When you’re scared, you grasp for answers. I worry that when we expect too much, you tend to go to extremes. And that ends up quite poorly," said Levi.

I attended Levi’s book launch in Washington recently, where he spoke about the need to think more clearly about the implications of America’s energy shift, rather than automatically shift to extremes. Here are three realities about America's energy transition he outlined in his talk.

Reality: The oil and gas boom is not an economic or energy security panacea.

Thanks to technology revolutions that allow us to access fossil fuels trapped under shale formations, America's oil output has climbed to 20-year highs and natural gas prices are half of what they are in Europe and Asia. Fossil fuel proponents claim that America's economy will be fundamentally transformed by this boom -- creating millions of jobs and finally making the country energy independent. The reality is much less spectacular, said Levi.

"Even if you did double or triple U.S. oil production, it might allow you to use the term 'independence' like an accountant. But it doesn’t actually make you independent," he said.

That's because oil is a global market -- a fact that pundits conveniently forget when talking about energy independence. And even if the U.S. were to triple production as some project, "it's not clear there's space in the world" for all that new supply, said Levi. Getting OPEC countries to hold 10 million barrels per day off the market to make room for the U.S. is "not a great assumption." And with all that new supply, prices would fall, thus making unconventional oil much less competitive and slowing the boom.

The fossil fuel industry also claims it will add 3 million new jobs by 2020. While the oil and gas boom is certainly creating new jobs, Levi said those jobs figures are squishy. "It's difficult to say this will add lots of new jobs in an absolute way."

Many of the jobs tallied by the oil and gas industry are at service stations. Those jobs aren't going to double if oil production doubles. A lot of jobs are also "induced," which makes the absolute impact difficult to calculate. (This is also an issue when calculating green jobs.) And because the U.S. economy is so diversified, the fossil fuel industry's economic impact will be far less significant than in previous decades when it was a larger part of America's economic picture.

"I see opportunities. But I don’t see the same fundamentally transformative outcome that others see. The reality is somewhere in between," said Levi.

Reality: Cleantech progress is slow and methodical, not revolutionary.

This reality is painfully clear now that the pre-stimulus exuberance has faded and promises of a “clean energy economy” have not materialized in the U.S. as people had hoped. This is not due to the failure of cleantech, but the failure of political promises to create a revolution in such a short timeframe. Even with a doubling of renewable electricity production and the creation of tens of thousands of jobs over the last four years, we've barely started realizing the extent of the clean energy transition.

"Cleantech is big business. But it's not yet up to the scale of the climate challenge," said Levi.

Levi believes financial and regulatory support mechanisms for renewables are important. But the relationship between regulation and technology is a delicate dance. Regulators are beholden to the progress of technology, so they can't push hard if there isn't a "clear way to satisfy their demand." He pointed to the recent 54.5 mpg fuel economy standards for automobiles as an example of that dance. The targets were passed with support from the auto industry because technological changes (spurred by earlier fuel standards) have made them possible. However, the auto industry also negotiated a possible "out" in 2022 in case the technology wasn't ready to meet the requirements in the final three years.

The technological changes needed to meet those targets won't necessarily come from a revolutionary electric vehicle; they'll mostly come from improvements in materials and engine design. That evolutionary progress is representative of the way many clean technologies will find a path to market.

“Evolutionary changes are more likely to happen when replacing infrastructure. Any change takes a long time," said Levi, who is still bullish on the growth prospects for cleantech.

Reality: People who say they can predict the future probably can’t.

This is one of the most important points that Levi makes. The energy world is full of prognosticating pundits attempting to predict the future ten, twenty and 30 years from now. But the energy markets -- particularly the oil markets -- are extremely complex and nearly impossible to predict.

Those difficulties in predicting the future are a problem in both cleantech and fossil fuels. A decade ago, those concerned about peak oil never would have imagined that America would be awash in unconventional oil and gas like it is today. And those predicting only incremental progress in renewables certainly never imagined how dramatically wind and solar would surpass expectations.

These two examples are good lessons for anyone making dramatic predictions about what's going to happen in energy.

"In some cases, if you say you don't know what's going to happen, people think you don't know what's going on," said Levi. "But a lot of the people who say they know what's going to happen are the people who understand the least."

That applies to people who make grandiose claims about U.S. energy independence, job creation (both green and fossil) and energy geopolitics -- basically, the entire energy punditocracy.

"In a time when we have so many problems, it's really tempting to check these items off a list. But we need to be smart and serious about what's happening," said Levi.

And the first step to approaching energy issues in a rational way is admitting when you simply don't know.